As a complement to Andrea’s article, Credit Card Companies Still Evil, here’s something else to make you sleep well at night. The average American has around 8 credit cards and is carrying roughly $9000 in credit card debt. If that’s not bad enough, the credit card companies are involved in what can only be described as a conspiracy to keep Americans in debt, permanently.
I watched an incredible PBS documentary online last night called “Secret History Of Credit Cards”. You can watch the 5-part eye-opener here at your leisure. But if you don’t have an hour to spare, here are some of the biggest dirty secrets for you. You may want to sit down for these.
1. Minimum Payments = 35+ years of repayments.
The minimum monthly payment used to be 5%. That caused a problem for the credit card issuers. Folks were being forced to pay off their balance too quickly, PLUS the cost of that 5% minimum made people wary of running up high bills. The solution was genius. Institute a 2% minimum payment. Not only will people splurge more because they have to pay less back each month, but it adds thousands of dollars in interest and increases the repayment time by DECADES. Sneaky doesn’t even cover it.
2. A late payment to ANY creditor can skyrocket your APR.
I’m not talking here about just your credit card payment being late. If you miss a car payment, mortgage payment, cell phone bill, in fact any payment, your APR can automatically increase to the massive default APR, which is usually 25-35%. Even if you’re ON TIME with your credit card payments, a late payment anywhere else can instigate this penalty. It’s known as the “Universal Default Clause.” Supposedly, it protects the credit card issuers from folks who are credit risks. Like these multi-billion dollar companies need protection from the little people.
3. There is NO LIMIT put on late payment charges.
This is something no other industry could get away with. You’d think there would be some kind of law preventing the banks from charging loan shark penalties, but there isn’t. Be just one hour late for a payment and instead of a $5 or $10 fee (which, prior to the 1996 Smiley vs. Citibank case, was the limit), you’re looking at least $30. Mine charges $36. Many financial analysts believe that with no cap on these fees, they will easily rise to $50-$60 in the next year. And remember, when you’re late they’re also killing you with a huge APR. Double whammy.
4. There is also no federal limit on interest rates.
Don’t you find it odd that in a time of very low interest on anything from car loans to mortgages, credit card companies can hand out APRs that embarrass loan sharks. Well, it’s not unusual to see 34.99% APRs, especially as a default rate, and the reason is simple. Most credit card companies reside in states like South Dakota or Delaware. States that have very weak or even no “usury laws”. So, there’s no cap on interest. By law, there’s nothing to stop them charging whatever interest they want. Here’s a map that links to the locations of top 10 credit card issuers.
5. You can often pay interest TWICE in one month.
This one’s called “two-cycle billing” and it’s also a completely legal loop-hole. Let’s say you pay off the balance of your card in full at the end of one month, say April. But in May, you don’t pay off your complete balance. Boom, some credit card issuers will charge you for two months’ worth of interest. Aren’t they lovely?